Yes group the retaining wall entities. You might use "Tools on Surface" plugin to draw your profile on the group, but not necessary. The group should not affect the SB from contours process.
I like to make curves of the contours with recurve rb. The process will also assure you've got a continuous set of segments for each contour. You can also use simplify curve routines (Fredo Tools?). But definitely look at Toposhaper that resolves some these requirements. There should definitely only be the single contour set, not a flat surface or second set below.
To raise the contours from a flat set, there are various methods, You might make a vertical array of edges or guides to snap to your intervals. I think the push-pull method is more trouble.
Look for Daniel Tal's 2008 lecture video too. You will see more on SB work.
https://sites.google.com/site/3dbasecamp2008/
